INTRODUCTION

Regarding Sanhua Intelligent Control, our previous in-depth reports “Level Up and Follow the Trend” and “What are the growth forces of Sanhua Intelligent Control that have been overlooked by the market?” The company's traditional refrigeration and electric vehicle thermal management business were analyzed in detail. In recent years, the company has also proved the company's leading position in the field of global thermal management at the management level. At present, the company is actively expanding its business based on the field of thermal management and quickly entering the field of humanoid robots, which is also the focus of the market's attention. This report also focuses on this. By reviewing the company's past successful development history, we believe that the company has the key qualities to be successful in new business fields such as humanoid robots.

Review: Global thermal management leader, outstanding technology, manufacturing, and cost capabilities. Sanhua Intelligent Control completed the acquisition of its auto parts subsidiary in 2017. The compound annualized growth rates of revenue and net profit attributable to shareholders of the parent company in 2017-2022 were about 17% and 16%, respectively. Looking at the breakdown, the support for the company's continued growth over the past few years mainly comes from the auto zero business, thanks to the company's precise diversification strategy and grasping the high growth dividends of electric vehicles around the world. Looking at a deeper level, we believe that the core of the company's success in the field of thermal management is outstanding technical ability, manufacturing capacity, and cost control ability: 1) On the technical side, the company has been based on technology since the beginning of development, maintaining 4%-5% of revenue. The company continues to promote the renewal and iteration of the core product electronic expansion valves. Currently, the global share of air conditioners and automotive electronic expansion valves exceeds 50%; 2) In terms of manufacturing, since products such as thermal management components and valves are mass-produced products, manufacturing capacity is also important. Parts and production equipment are independently designed and developed by the company, and overall production efficiency has an advantage; 3) In terms of cost, the company's scale effect and manufacturing efficiency advantages have laid the foundation for cost advantage, and with technical advantages, it has continuously promoted cost reduction and upgrading in terms of product volume, design, materials, etc., contributing to additional cost advantages, and the product's gross margin is also clearly leading.

Expansion: Follow the trend and enter the humanoid robot circuit and move towards a sea of stars. We believe that the company's technical, manufacturing, and cost advantages can be continued in different products. At present, in addition to the two major businesses of traditional refrigeration and automotive thermal management, the company is actively entering the humanoid robot circuit. We believe that the company has a high probability of success and is expected to create a new rapid growth curve. 1) At the industry level, considering the replacement of human labor by humanoid robots, there is plenty of room for imagination: Goldman Sachs Research predicts that future labor shortages will drive the humanoid robot market to reach 6 billion US dollars in the next 10-15 years; Musk previously predicted that if Optimus is mature and usable, it may reach 100-20 billion units in the future. At the same time, with the rapid development of AI technology and the clarification of the electric drive technology route for humanoid robots represented by Tesla, we believe that the humanoid robot industry is ushering in an opportunity; 2) For Sanhua Intelligent Control, the company focuses on robot mechatronic actuators, which mainly include rotating joints and linear joints, etc., and have many synergetic advantages with the company's current main business: technical collaboration, the power source of thermal management valves and pumps is a motor, and the requirements for refinement are high. As an industry leader, Sanhua Intelligent Control already has deep accumulation in this area, and the robot electromechanical actuator also has deep accumulation in this area. Driven by motors; customer collaboration, Tesla, which is currently one of the company's leading companies in humanoid robots, is one of the company's electric vehicle thermal management customers, and the two have extensive experience in R&D, business cooperation; manufacturing collaboration, the company's mass production quality and cost control capabilities are also required for robot mechatronic actuators, and the company has formed a global production base layout, which is expected to help global customers cooperate and expand.

Investment advice

The company's net profit attributable to shareholders of the parent company in 2023 and 2024 is estimated to be about 3 billion yuan and 4 billion yuan, respectively, corresponding to PE, about 31 and 24 times, respectively. Maintain a “buy” rating.

Risk warning

1. The risk that the electric vehicle industry will not grow as expected; 2. The progress of humanoid robots will fall short of expectations; 3. The risk that profit prediction assumptions are untrue or fall short of expectations.